Our job at JB&A, as an
M&A consultant, is to work with our client to identify an exit strategy.
To be successful, we must carefully listen to our client’s financial and
personal goals in a transaction. There are a multitude of strategic and
private equity acquirers today with acquisition or investment dollars to
spend. Below are examples of types of structures that are typical in
today’s M&A climate.
- Outright Purchase-An
acquisition is the process wherein the stock or assets of a
corporation are acquired by a purchaser. The transaction may take
the form of a stock purchase or an asset purchase. The buyer would
acquire 100% ownership of the company from a departing owner.
Asset Purchase: The acquired company transfers the assets
of the business to the purchaser. These could include equipment,
inventory and real estate, as well as intangible assets such as
contract rights, leases, copyrights, patents, trademarks, etc. The
acquired company executes the specific types of documents necessary
to transfer the assets, such as deeds, bills of sale, and
assignments. This type of transaction generally contains tax
attributes favorable to the buyer.
Stock Purchase: The seller transfers the shares in the
acquired corporation to the purchaser in exchange for an agreed-upon
payment. A stock transaction is appropriate when tax costs, risk
considerations or other issues surrounding an asset transaction make
a stock sale more appealing to the parties.
- Owner Recapitalization-A
recapitalization provides for the owner(s) of the business to sell
the assets or stock of the company to a private equity group.
Simultaneously with the sale, a “new company” is created and the
selling shareholders are then provided an opportunity to roll over a
portion of the proceeds that were received from the sale and become
stockholders in the new company. Tax laws provide, in some
instances, that the money received from the sale of the company that
is reinvested in the new company would not be taxable.
A “recap” is an ideal alternative for an entrepreneur business owner
who wishes to sell a portion of his/her company for liquidity or
estate planning purposes, while retaining a significant equity
position to participate in the ongoing company's upside. This
structure allows the owner to achieve personal liquidity without
sacrificing operating control of the company that the owner has
painstakingly grown, while gaining a strong financial partner to
assist with issues of strategic importance. In many cases, an
owner's earning potential on the rolled-over equity is as much or
more than the amount received in the initial "partial sale." In
addition, a recapitalization eliminates all personal guarantees tied
to the company. The financial partner or equity investor will also
implement an incentive program to provide management and employees
with the opportunity to participate in the equity upside generated
by the company's growth strategy.
- Management-Led Buyout-
Incumbent management will partner with a financial partner, such
as a private equity group arranged through JB&A to acquire the
business they are currently operating. Sellers typically receive all
cash; and management will invest a meaningful portion of the
purchase price with the majority of the capital being provided by
the private equity group. The financial partner or equity investor
will also implement a compensation incentive program to reward
management for profitably growing the business, both internally and
- Family Succession- Often
this type of transaction involves backing certain members of family
management in buying ownership from the senior generation or from
outside shareholders. By working through JB&A in a family succession
transaction, active family operators secure operating control and
significant equity ownership while gaining a strong financial
partner or equity investor.
Jerry Baker & Associates,
Address: 13108 Linden Lane
Leawood, Kansas 66209
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